The New Face of Class Warfare

Warning

For
decades Democrats seemed to have a monopoly on class war
with demagogy of "the rich." Today it is the rich
who are instigating class war with attacks on middle
class jobs. The ladders of upward mobility are being
dismantled. America, the land of opportunity, is giving
way to polarization between rich and poor.

The
assault on jobs predates the Bush regime. However, the
loss of middle class jobs has become particularly
intense in the 21st century, and, like other pressing
problems, has been ignored by President Bush, who is
focused on instigating war in the Middle East and a
police state at home. The lives and careers that are
being lost to the carnage of a gratuitous war in Iraq
are paralleled by the economic destruction of careers,
families and communities in the U.S. Since the days of
President Franklin D. Roosevelt in the 1930s, the U.S.
government has sought to protect employment of its
citizens. Bush has turned his back on this
responsibility. He has given his support to the
offshoring of American jobs that is eroding the living
standards of Americans. Whether this is an impeachable
offense, it is another example of his betrayal of the
public trust.

"Free trade" and "globalization" are the
guises behind which class war is being conducted against
the middle class by both political parties. Patrick J.
Buchanan, a three-time contender for the presidential
nomination, put it well when he wrote (March 10, 2006,
World Net Daily column🙂 that NAFTA and the various
so-called trade agreements were never trade deals. The
agreements were enabling acts that enabled U.S.
corporations to dump their American workers, avoid
Social Security taxes, health care and pensions, and
move their factories offshore to locations where labor
is cheap.

The
offshore outsourcing of American jobs has nothing to do
with free trade based on comparative advantage.
Offshoring is labor arbitrage. First world capital and
technology are not seeking comparative advantage at home
in order to compete abroad. They are seeking absolute
advantage abroad in cheap labor.

Two
recent developments made possible the supremacy of
absolute over comparative advantage: the high speed
Internet and the collapse of world socialism, which
opened China`s and India`s vast under-utilized labor
resources to first world capital.

In
times past first world workers had nothing to fear from
cheap labor abroad. Americans worked with superior
capital, technology and business organization. This made
Americans far more productive than Indians and Chinese,
and, as it was not possible for U.S. firms to substitute
cheaper foreign labor for U.S. labor, American jobs and
living standards were not threatened by low wages abroad
or by the products that these low wages produced.

The
advent of offshoring has made it possible for U.S. firms
using first world capital and technology to produce
goods and services for the U.S. market with foreign
labor. The result is to separate Americans` incomes from
the production of the goods and services that they
consume. This new development, often called
"globalization," allows cheap foreign labor to work
with the same capital, technology and business know-how
as U.S. workers. The foreign workers are now as
productive as Americans, with the difference being that
the large excess supply of labor that overhangs labor
markets in China and India keeps wages low. Labor that
is equally productive but paid a fraction of the wage is
a magnet for Western capital and technology.

Although a new development, offshoring is destroying
entire industries, occupations and communities in the
United States. The devastation of U.S. manufacturing
employment was waved away with promises that a "new
economy" based on high tech knowledge jobs would
take its place. Education and retraining were touted as
the answer.

In testimony before the
U.S.-China Commission (September 25, 2003:[PDF]),
I explained that offshoring is the replacement of U.S.
labor with foreign labor in U.S. production functions
over a wide range of tradeable goods and services. As
the production of most tradeable goods and services can
be moved offshore, there are no replacement occupations
for which to train except in domestic "hands on"
services such as barbers, manicurists, and hospital
orderlies. No country benefits from trading its
professional jobs, such as engineering, for domestic
service jobs.

At a
Brookings Institution conference in Washington, D.C., in
January 2004, I
predicted that if the pace of jobs outsourcing and
occupational destruction continued, the U.S. would be a
third world country in 20 years. Despite my regular
updates on the poor performance of U.S. job growth in
the 21st century, economists have insisted that
offshoring is a manifestation of free trade and can only
have positive benefits overall for Americans.

Reality has contradicted the glib economists. The new
high tech knowledge jobs are being outsourced abroad
even faster than the old manufacturing jobs.
Establishment economists are beginning to see the light.
Writing in Foreign Affairs (March/April 2006)
Princeton economist and former Federal Reserve
vice-chairman Alan Blinder
concludes that economists who insist that offshore
outsourcing is merely a routine extension of
international trade are overlooking a major
transformation with significant consequences. Blinder
estimates that 42-56 million American service sector
jobs are
susceptible to offshore outsourcing. Whether all
these jobs leave, U.S. salaries will be forced down by
the willingness of foreigners to do the work for less.

Software engineers and information technology workers
have been especially hard hit. Jobs offshoring, which
began with call centers and back-office operations, is
rapidly moving up the value chain. Business Week`sMichael Mandel (September
15, 2005: ) compared starting salaries in 2005 with
those in 2001. He found a 12.7% decline in computer
science pay, a 12% decline in computer engineering pay,
and a 10.2% decline in electrical engineering pay.
Marketing salaries experienced a 6.5% decline and
business administration salaries fell 5.7%. Despite
Sarbanes-Oxley, a make-work law for accountants, even
accounting majors were offered 2.3% less.

Using
the same sources as the Business Week article
(salary data from the National Association of Colleges
and Employers and BLS data for inflation adjustment),
Professor Norm Matloff at the University of California,
Davis, made the same comparison for master degree
graduates. He found that between 2001 and 2005 starting
pay for master degrees in computer science, computer
engineering and electrical engineering fell 6.6%, 13.7%,
and 9.4% respectively.

On
February 22, 2006, CNNMoney.com staff writer Shaheen
Pasha
reported that America`s large financial institutions
are moving "large portions of their investment
banking operations abroad." Offshoring is now
killing American jobs in research and analytic
operations, foreign exchange trades and highly
complicated credit derivatives contracts. Deal-making
responsibility itself may eventually move abroad.
Deloitte Touche says that the financial services
industry will move 20 percent of its total costs base
offshore by the end of 2010. As the costs are lower in
India, the move will represent more than 20 percent of
the business. A job on Wall St is a declining option for
bright young persons with high stress tolerance as
America`s last remaining advantage is outsourced.

According to Norm Augustine, former CEO of Lockheed
Martin, even McDonald jobs are on the way offshore.
Augustine reports that McDonald is experimenting with
replacing error-prone order takers with a system that
transmits orders via satellite to a central location and
from there to the person preparing the order. The
technology lets the orders be taken in India or China at
costs below the U.S. minimum wage and without the
liabilities of U.S. employees.

American economists, some from incompetence and some
from being bought and paid for, described globalization
as a "win-win" development. It was supposed to
work like this: The U.S. would lose market share in
tradable manufactured goods and make up the job and
economic loss with highly-educated knowledge workers.
The win for America would be lower-priced manufactured
goods and a white collar work force. The win for China
would be manufacturing jobs that would bring economic
development to that country.

It
did not work out this way, as Morgan Stanley`s Stephen
Roach, formerly a cheerleader for globalization,
recently admitted. It has become apparent that job
creation and real wages in the developed economies are
seriously lagging their historical norms as offshore
outsourcing displaces the "new economy" jobs in"software programming, engineering, design, and the
medical profession, as well as a broad array of
professionals in the legal, accounting, actuarial,
consulting, and financial services industries" . The
real state of the U.S. job market is
revealed by a Chicago Sun-Times report on
January 26, 2006, that 25,000 people applied for 325
jobs at a new Chicago Wal-Mart.

According to the Bureau of Labor Statistics (BLS)
payroll jobs data , over the past half-decade
(January 2001—January 2006, the data series available at
time of writing) the US economy created 1,050,000 net
new private sector jobs and 1,009,000 net new government
jobs for a total five-year figure of 2,059,000. That is
seven million jobs short of keeping up with population
growth, definitely a serious job shortfall.

The
BLS payroll jobs data contradict the hype from business
organizations, such as the U.S. Chamber of Commerce,
that offshore outsourcing is good for America. Large
corporations, which have individually dismissed
thousands of their U.S. employees and replaced them with
foreigners, claim that jobs outsourcing allows them to
save money that can be used to hire more Americans. The
corporations and the business organizations are very
successful in placing this disinformation in the media.
The lie is repeated everywhere and has become a mantra
among no-think economists and politicians. However, no
sign of these jobs can be found in the payroll jobs
data. But there is abundant evidence of the lost
American jobs.

During the past five years (January 01—January 06), the
information sector of the U.S. economy lost 644,000 jobs
or 17.4% of its work force. Computer systems design and
related lost 105,000 jobs or 8.5% of its work force.
Clearly, jobs offshoring is not creating jobs in
computers and information technology. Indeed, jobs
offshoring is not even creating jobs in related fields.

U.S.
manufacturing lost 2.9 million jobs, almost 17% of the
manufacturing work force. The wipeout is across the
board. Not a single manufacturing payroll classification
created a single new job.

The
declines in some manufacturing sectors have more in
common with a country undergoing saturation bombing
during war than with a super-economy that is "the
envy of the world." In five years, communications
equipment lost 42% of its workforce. Semiconductors and
electronic components lost 37% of its workforce. The
workforce in computers and electronic products declined
30%. Electrical equipment and appliances lost 25% of its
employees. The workforce in motor vehicles and parts
declined 12%. Furniture and related products lost 17% of
its jobs. Apparel manufacturers lost almost half of the
work force. Employment in textile mills declined 43%.
Paper and paper products lost one-fifth of its jobs. The
work force in plastics and rubber products declined by
15%.

For
the five year period, U.S. job growth was limited to
four areas: education and health services, state and
local government, leisure and hospitality, and financial
services. There was no U.S. job growth outside these
four areas of domestic nontradable services.

Oracle, for example, which has been handing out
thousands of pink slips, has recently announced two
thousand more jobs
being moved to India. How is Oracle`s move of U.S.
jobs to India creating American jobs in nontradable
services such as waitresses and bartenders, hospital
orderlies, state and local government and credit
agencies?

Engineering jobs in general are in decline, because the
manufacturing sectors that employ engineers are in
decline. During the last five years, the U.S. work force
lost 1.2 million jobs in the manufacture of machinery,
computers, electronics, semiconductors, communication
equipment, electrical equipment, motor vehicles and
transportation equipment. The BLS payroll job numbers
show a total of 69,000 jobs created in all fields of
architecture and engineering, including clerical
personnel, over the past five years. That comes to a
mere 14,000 jobs per year (including clerical workers).
What is the annual graduating class in engineering and
architecture? How is there a shortage of engineers when
more graduate than can be employed?

Of
course, many new graduates take jobs opened by
retirements. We would have to know the retirement rates
to get a solid handle on the fate of new graduates. But
it cannot be very pleasant, with declining employment in
the manufacturing sectors that employ engineers and a
minimum of 65,000 H-1B work visas annually for
foreigners plus an indeterminate number of L-1 work
visas.

It is
not only the Bush regime that bases its policies on
lies. Not content with moving Americans` jobs abroad,
corporations want to fill the jobs remaining in America
with foreigners on work visas. Business organizations
allege shortages of engineers, scientists and even
nurses. Business organizations have successfully used
public relations firms and bought-and-paid-for
"economic studies" to convince policymakers that
American business cannot function without H-1B visas
that permit the importation of indentured employees from
abroad who are paid less than the going US salaries. The
so-called shortage is, in fact, a replacement of
American employees with foreign employees, with the
soon-to-be-discharged American employee first required
to train his replacement.

It is
amazing to see free-market economists rush to the
defense of H-1B visas. The visas are nothing but a
subsidy to U.S. companies at the expense of US citizens.

Keep
in mind this H-1B subsidy to U.S. corporations for
employing foreign workers in place of Americans as we
examine the Labor Department`s job projections over the
2004-2014 decade.

All
of the occupations with the largest projected employment
growth (in terms of the number of jobs) over the next
decade are in nontradable domestic services. The
top ten sources of the most jobs in "superpower"
America are: retail salespersons, registered nurses,
postsecondary teachers, customer service
representatives, janitors and cleaners, waiters and
waitresses, food preparation (includes fast food), home
health aides, nursing aides, orderlies and attendants,
general and operations managers. Note than none of this
projected employment growth will contribute one nickel
toward producing goods and services that could be
exported to help close the massive U.S. trade deficit.
Note, also, that few of these job classifications
require a college education.

Among
the fastest growing occupations (in terms of rate of
growth), seven of the ten are in health care and social
assistance. The three remaining fields are: network
systems and data analysis with 126,000 jobs projected or
12,600 per year; computer software engineering
applications with 222,000 jobs projected or 22,200 per
year, and computer software engineering systems software
with 146,000 jobs projected or
14,600 per year.

Assuming these projections are realized, how many of the
computer engineering and network systems jobs will go to
Americans? Not many, considering the 65,000 H-1B visas
each year (bills have been introduced in Congress to
raise the number) and the loss during the past five
years of 761,000 jobs in the information sector and
computer systems design and related.

Judging from its ten-year jobs projections, the U.S.
Department of Labor does not expect to see any
significant high-tech job growth in the U.S. The
knowledge jobs are being outsourced even more rapidly
than the manufacturing jobs. The so-called "new
economy" was just another hoax perpetrated on the
American people.

If
outsourcing jobs offshore is good for U.S. employment,
why won`t the U.S. Department of Commerce release the
200-page, $335,000 study of the impact of the offshoring
of U.S. high-tech jobs? Republican political appointees
reduced the 200-page report to 12 pages of public
relations hype and refuse to allow the Technology
Administration experts who wrote the report to testify
before Congress. Democrats on the House Science
Committee are unable to pry the study out of the hands
of Commerce Secretary Carlos Gutierrez. On March 29,
2006, Republicans on the House Science Committee voted
down a resolution (H.Res. 717) designed to force the
Commerce Department to release the study to Congress.
Obviously, the facts don`t fit the Bush regime`s
globalization hype.

The
BLS payroll data that we have been examining tracks
employment by industry classification. This is not the
same thing as occupational classification. For example,
companies in almost every industry and area of business
employ people in computer-related occupations. A recent
study from the Association for Computing Machinery
claims: "Despite all the publicity in the United
States about jobs being lost to India and China, the
size of the IT employment market in the United States
today is higher than it was at the height of the dot.com
boom. Information technology appears as though it will
be a growth area at least for the coming decade."

Computer and mathematical employment includes such
fields as "software engineers applications,"
"software engineers systems software,""computer
programmers,""network systems and data
communications," and "mathematicians." Has
this occupation been a source of job growth?

In
November of 2000 this occupation employed
2,932,810 people . In November of 2004 (the latest
data available), this occupation employed 2,932,790, or
20 people fewer. Employment in this field has been
stagnant for four years.

During these four years, there have been employment
shifts within the various fields of this occupation. For
example, employment of computer programmers declined by
134,630, while employment of software engineers
applications rose by 65,080, and employment of software
engineers systems software rose by 59,600. (These shifts
probably merely reflect change in job title from
programmer to software engineer.)

These
figures do not tell us whether any gain in software
engineering jobs went to Americans. According to
Professor Norm Matloff, in 2002 there were 463,000
computer-related H-1B visa holders in the US. Similarly,
the 134,630 lost computer programming jobs (if not
merely a job title change) may have been outsourced
offshore to foreign affiliates.

Architecture and engineering employment includes all the
architecture and engineering fields except software
engineering. The total employment of architects and
engineers in the U.S. declined by 120,700 between
November 1999 and November 2004. Employment declined by
189,940 between November 2000 and November 2004, and by
103,390 between November 2001 and November 2004.

There
are variations among fields. Between November 2000 and
November 2004, for example, U.S. employment of
electrical engineers fell by 15,280. Employment of
computer hardware engineers rose by 15,990 (possibly
these are job title reclassifications). Overall,
however, over 100,000 engineering jobs were lost. We do
not know how many of the lost jobs were outsourced
offshore to foreign affiliates or how many American
engineers were dismissed and replaced by foreign holders
of H-1B or L-1 visas.

Clearly, engineering and computer-related employment in
the U.S. has not been growing, whether measured by
industry or by occupation. Moreover, with a half million
or more foreigners in the U.S. on work visas, the
overall employment numbers do not represent employment
of Americans.

American employees have been abandoned by American
corporations and by their representatives in Congress.
America remains a land of opportunity–but for
foreigners–not for the native born. A country whose
work force is concentrated in domestic nontradable
services has no need for scientists and engineers and no
need for universities. Even the projected jobs in
nursing and school teachers can be filled by foreigners
on H-1B visas.

In
the U.S. the myth has been firmly established that the
jobs that the U.S. is outsourcing offshore are being
replaced with better jobs. There is no sign of these
jobs in the payroll jobs data or in the occupational
employment statistics. When a country loses entry level
jobs, it has no one to promote to senior level jobs.
When manufacturing leaves, so does engineering, design,
research and development, and innovation itself.

On
February 16, 2006, the New York Times
reported on a new study presented to the National
Academies that concludes that outsourcing is climbing
the skills ladder. A survey of 200 multinational
corporations representing 15 industries in the U.S. and
Europe found that 38 percent planned to change
substantially the worldwide distribution of their
research and development work, sending it to India and
China. According to the New York Times, "More
companies in the survey said they planned to decrease
research and development employment in the United States
and Europe than planned to increase employment."

The
study and the discussion it provoked came to untenable
remedies. Many believe that a primary reason for the
shift of R&D to India and China is the erosion of
scientific prowess in the U.S. due to lack of math and
science proficiency of American students and their
reluctance to pursue careers in science and engineering.
This belief begs the question why students would chase
after careers that are being outsourced abroad.

The
main author of the study, Georgia Tech professor Marie
Thursby, believes that American science and engineering
depend on having "an environment that fosters the
development of a high-quality work force and productive
collaboration between corporations and universities."
The Dean of Engineering at the University of California,
Berkeley, thinks the answer is to recruit the top people
in China and India and bring them to Berkeley. No one
seems to understand that research, development, design,
and innovation take place in countries where things are
made. The loss of manufacturing means ultimately the
loss of engineering and science. The newest plants
embody the latest technology. If these plants are
abroad, that is where the cutting edge resides.

The
denial of jobs reality has become an art form for
economists, libertarians, the Bush regime, and
journalists. Except for Lou Dobbs, no accurate reporting
is available in the "mainstream media."

Economists have failed to examine the incompatibility of
offshoring with free trade. Economists are so accustomed
to shouting down protectionists that they dismiss any
complaint about globalization`s impact on domestic jobs
as the ignorant voice of a protectionist seeking to
preserve the buggy whip industry. Matthew J. Slaughter,
a Dartmouth economics professor rewarded for his service
to offshoring with appointment to President Bush`s
Council of Economic Advisers, suffered no harm to his
reputation when he wrote: "For every one job that
U.S. multinationals created abroad in their foreign
affiliates, they created nearly two U.S. jobs in their
parent operations." In other words, Slaughter claims
that offshoring is creating more American jobs than
foreign ones.

How
did Slaughter arrive at this conclusion? Not by
consulting the BLS payroll jobs data or the BLS
Occupational Employment Statistics. Instead, Slaughter
measured the growth of U.S. multinational employment and
failed to take into account the two reasons for the
increase in multinational employment: (1) Multinationals
acquired many existing smaller firms, thus raising
multinational employment but not overall employment, and
(2) many U.S. firms established foreign operations for
the first time and thereby became multinationals, thus
adding their existing employment to Slaughter`s number
for multinational employment.

ABC
News` John Stossel, a libertarian hero, recently
made a similar error. In debunking Lou Dobbs`
concern with U.S. jobs lost to offshore outsourcing,
Stossel invoked the California-based company,

Collabnet. He
quotes the CEO`s claim that outsourcing saves his
company money and lets him hire more Americans. Turning
to Collabnet`s web page, it is very interesting to see
the employment opportunities that the company posts for
the United States and for India.

In
India, Collabnet has openings (at time of writing) for
eight engineers, a sales engineer, a technical writer
and a telemarketing representative. In the U.S.
Collabnet has openings for one engineer, a
receptionist/office assistant, and positions in
marketing, sales, services and operations. Collabnet is
a perfect example of what Lou Dobbs and I report: the
engineering and design jobs move abroad, and Americans
are employed to sell and market the foreign-made
products.

Other
forms of deception are widely practiced. For example,
Matthew Spiegleman, a Conference Board economist, claims
that manufacturing jobs are only slightly higher paid
than domestic service jobs, so there is no meaningful
loss in income to Americans from offshoring. He reaches
this conclusion by comparing only hourly pay and leaving
out the longer manufacturing work week and the
associated benefits, such as health care and pensions.

Occasionally, however, real information escapes the spin
machine. In February 2006 the National Association of
Manufacturers, one of offshoring`s greatest boosters,
released a report, "U.S.
Manufacturing Innovation at Risk," by
economists Joel Popkin and Kathryn Kobe . The economists
find that U.S. industry`s investment in research and
development is not languishing after all. It just
appears to be languishing, because it is rapidly being
shifted overseas: "Funds provided for
foreign-performed R&D have grown by almost 73 percent
between 1999 and 2003, with a 36 percent increase in the
number of firms funding foreign R&D."

US
industry is still investing in R&D after all; it is just
not hiring Americans to do the research and development.
U.S. manufacturers still make things, only less and less
in America with American labor. U.S. manufacturers still
hire engineers, only they are foreign ones, not American
ones.

In
other words, everything is fine for U.S. manufacturers.
It is just their former American work force that is in
the doldrums. As these Americans happen to be customers
for U.S. manufacturers, U.S. brand names will gradually
lose their U.S. market. U.S. household median income has
fallen for the past five years. Consumer demand has been
kept alive by consumers` spending their savings and home
equity and going deeper into debt. It is not possible
for debt to forever rise faster than income.

The
United States is the first country in history to destroy
the prospects and living standards of its labor force.
It is amazing to watch freedom-loving libertarians and
free-market economists serve as apologists for the
dismantling of the ladders of upward mobility that made
the America of old an opportunity society.

America has begun a polarization into rich and poor. The
resulting political instability and social strife will
be terrible.

Dr.
Roberts is author or coauthor of eight books and has
contributed to numerous scholarly publications. He has
had careers in academia, journalism, business, and
government, serving in the congressional staff and as
Assistant Secretary of the Treasury in the Reagan
administration. He was educated at Georgia Tech, the
University of Virginia, the University of California,
Berkeley, and Oxford University, where he was a member
of Merton College.